Can America’s King of Beers Rule Again In Foreign Hands?
John-Erik is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Since brewing behemoth InBev bought America’s biggest brewer and formed AB InBev (NYSE: BUD) in 2008, the company has executed sharply.
It has turned around declining sales, which are now up some 7% over 2009. It has introduced and grown new beers like its Shock Top line to compete in the fast-growing craft market. It’s bought craft beers like Goose Island to compete even better on that front. And it recently added two popular imports to its portfolio: Corona and Modelo, the latter of which grew its US market share by more than 40 percent between 2008 and 2011, according to Beer Marketers Insights.
AB InBev has expanded margins. And in what may be the best evidence of shrewd corporate operation, the company’s earnings over the past 12 months represent a 93% increase over fiscal 2009.
Lost in all that, however, was continual bad news for its flagship beer, America’s longtime king: Budweiser. Bud was surpassed long ago by its own progeny, Bud Light, as America’s best-selling bottle of suds. But it was kicked into a humbling 3rd place in 2011 by Molson-Coors’ (NYSE: TAP) true flagship beer, Coors Light. Bud is not only not the king anymore, it’s more like a mere Duke of Beers.
The loss of Budweiser market share at home may not have kept AB InBev from improving its bottom line. But it’s an important metric for investors to consider. AB InBev’s growth strategy has been to buy up existing, well-established brands, then look for ways to make those lines more profitable. If the biggest brand it’s acquired continues to bleed market share, it could be a red flag for investors.
Crafts and Coors both gain ground
Budweiser lost nearly a full point of market share in the U.S. between 2009 and 2011 alone, dropping from a 9.3% share to 8.4% share, according to Beer Marketers Insights. What’s more, it lost that share at a time when the overall US beer market has been shrinking. So Bud has had a shrinking market share in a shrinking market.
Not very becoming of a king.
Some of Bud’s market share loss may be attributable to the shift toward craft beer in America. The craft brew market has been expanding at a double-digit rate. Still, it makes up just about 6% of the total U.S. beer market -- less than Bud alone. And other major U.S. beer labels have fared better. Coors Light gained market share over that period, climbing from an 8.3% share to an 8.7% share.
Effort and committment, but Bud's still losing
CEO Carlos Alves de Brito said said the company is seeing improvement in how the Budweiser brand is seen by millennials. AB-InBev has been sponsoring music festivals and music parties targeted at the age group and offering free samples of Budweiser in hopes of converting the 21-to-27-year-olds. Brito said the company remains “committed to stabilizing Budweiser's market share in the U.S. and we will continue to work hard to do so.”
Still, market share shrinks, bit by bit.
In its last fiscal quarter, AB InBev reported gains from sales of new additions: Bud Light Platinum, a higher-alcohol brew, and Bud Light Lime-a-Rita. Beers under the Shock Top label, the megabrewer’s answer to craft beers, also did well. But those improvements were offset by a further market share loss from Budweiser, the company reported.
All this looks bleak for the King. But there may be hope.
A different story overseas
While Budweiser has continued to lose customers here in the US, beer drinkers overseas are warming up to the brand.
In Brazil, Budweiser was launched only a year ago, yet its sales are “quickly approaching those of Bohemia,” the country’s oldest beer, AB InBev reported. In China, Budweiser volumes grew by double digits, and the company continues its marketing efforts there through music and concerts. Bud has also gained market share in Western Europe, including the UK, and in Eastern Europe, in Russia and the Ukraine.
Overall, the company’s global shipments of Bud were up 6.2% year-to-date as of 2012's third quarter. All that holds promise for America's most iconic of all beer brands. And it's good news for AB InBev, which is showing it can find new markets for a brand already well-known globally.
It also means that the days of Budweiser's reign may not be a thing of the past. The king may just be finding new territory to rule.
jekoslosky has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Molson Coors Brewing Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!